Political risk and foreign direct investment in Nigeria: New empirical evidence

This paper investigated the effect of political risk on FDI inflow to Nigeria using secondary data from 2000 to 2014 using simple linear regression. The study combined from select variables, the institutional factors with location determinants peculiar to Nigeria’s risk environment.
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Political risk and foreign direct investment in Nigeria: New empirical evidence Accounting 3 (2017) 171–180 Contents lists available at GrowingScience Accounting homepage: www.GrowingScience.com/ac/ac.html Political risk and foreign direct investment in Nigeria: New empirical evidence Musa Hatim Kokoa*, Yatiban Aminurraasyida and Zengeni Knocks Tapiwaa a School of International Studies, College of Law, Government and International Studies (COLGIS), 06010, Universiti Utara Malaysia, Sintok, Kedah, Malaysia CHRONICLE ABSTRACT Article history: The positive effect of globalization has continued to impact FDI inflow to developing countries Received September 5, 2016 during the last decade except for the rising influence of political risk in host locations. Mixed Received in revised format outcomes have trailed the findings related to the studies on FDI and political risk relationship September 16 2016 and in particular on African countries like Nigeria. This paper investigated the effect of political Accepted November 2 2016 Available online risk on FDI inflow to Nigeria using secondary data from 2000 to 2014 using simple linear November 4 2016 regression. The study combined from select variables, the institutional factors with location Keywords: determinants peculiar to Nigeria’s risk environment. It is found that political risk holds a Political Risk positive and significant association with FDI to Nigeria but not close enough to inhibit the FDI inflow of foreign investment to the country. However, the findings provide a strong basis for Nigeria policy shift in relation to security, country promotion and rebranding as well strengthening of institutions. © 2017 Growing Science Ltd. All rights reserved. 1. Introduction The recent development in the increase in foreign direct investment (FDI) flow to developing countries is a major sign of globalization mainly driven by the efforts made in liberalizing many economies creating a near absence of trade barriers. This feat is commonly associated with investors’ concern on what may befall such investments in the target locations. The world FDI performances in the last decade has been encouraging which shows how vital its role in global economic contribution is, for example although a decline was witnessed in 2014 FDI flow compared to 2013, it accounted for 40% of the world total external development finance targeting developed and transition economies according to the World Investment Report (UNCTAD, 2015), making it a primary source of capital. The 16% decline according to this report shows $1.47trn in 2013 as against $1.2trn in 2014. The overall regional attractions of global FDI for the same period shows that developing Asia maintained a leading role as preferred destination with nearly half trillion in value ($465bn), followed by Europe ($289bn), Latin America and the Caribbean ($159bn), North America ($146bn), Africa ($54bn) and the transition economies had $48bn. (UNCTAD, 2015). * Corresponding author. Tel.: +60143227749 E-mail address: hatimlion@gmail.com (M. Hatim Koko) © 2017 Growing Science Ltd. All rights reserved. doi: 10.5267/j.ac.2016.11.001         172   It can be deduced from the above figures quoted from the WIR that Africa receives less than 5% of the world total despite the rising rate of return on FDI in the continent since 2000 (Adams, 2009), intense promotional efforts to attract (UNCTAD, 1995) and the rising economic and emerging market potentials (UNCTAD, 2015). Additionally, this report showed that West Africa has its share of FDI fall by 10% in the same period due largely to falling prices in commodity markets, Ebola disease outbreak and regional conflicts. Nigeria’s share which form part of the top five host economies in the continent stand at $4.7bn being 2.5% Africa’s total. This report shows a 16% fall from the preceding year arising from the country’s effort towards diversification into non-oil sectors (UNCTAD, 2015) which has remain in the foremost of recommendations by scholars (Kareem et al., 2012). This marked decline in the world FDI performances as revealed by this report (UNCTAD, 2015) is a result of a fragile global economy, divestments in new investment, policy uncertainty and the rising geopolitical risks. Country risks are found to discourage FDI (Hayakawa et al., 2011) and are considered a major source of concern whenever planning for wider success whether to a local or foreign firm. Country risks according to the PRS Group are either economic, financial or political which are further categorized into six classes of economic, transfer, exchange, location, sovereign and political risks (Meldrum, 2000) commonly used by most rating services. Literature in greater details addresses the influence of political risk on FDI inflow in developing nations. Similarly multinational firms have developed greater interest in the type and character of political risks that are likely to shape their decisions when in a host nat ...